Is Meituan a payments provider without a license?

Recently a lawyer in China caused a stir in the payments industry by filing a complaint with the People's Bank of China (PBOC) on Meituan, China’s major O2O platform which is worth tens of USD billions. The complaint alleged that Meituan is engaged in payment settlement without having a required payments license.

The accuser was reasoning that when a user is paying for a meal with a discount on Meituan, funds do not go directly from user’s account to merchant’s account, but in fact do stop over on Meituan’s accounts and therefore the web platform is in fact moving funds. According the lawyer, this means that the company is engaged in settlement without having a payments license.

The most telling fact on proving Meituan does have control over funds is that a merchant almost never receives his payment instantly, but Meituan rather pays with a delay of a few days. Meituan’s app even has a wallet, which you can top-up with your bank card and use the balance to purchase group buying coupons.

Meituan was quick to reply that its payment function has been around for more than a year and “is implemented to improve customer experience”. The company argues that since they use the system internally only, and do not offer it as a service to other companies, they are therefore working within legal boundaries. The O2O company has also added that other online firms were functioning in the same way.

But what is the regulatory framework here? The PBOC laid the groundwork in 2010 when it issued regulations on non-financial enterprises engaged in payments, started issuing payment licenses in 2011, and further refined the 2010 regulations in 2015. According to the basic definition of third-party payment providers, a company that plays part in a funds transfer between two entities, it is considered to be such a provider.

The PBOC haven’t made an official statement with relation to the filed complaint yet, and if there is a take away from this story, than it is that the industry indeed is developing too fast to operate in a completely “non-gray” area. Though the Central Bank does update the regulations, still misunderstandings like if a multi billion dollar company operates illegally still happen.